Loading ...Nasdaq 100 vs Gold: Pre-Bubble Backtest Complete?
Shared this chart on Goldtent back in December, before the 2019 backtest of the 16 year Inverse Head and Shoulders neckline. Fast forward a few months to today and it looks like the backtest may have completed.
This is the chart that keeps me bullish on the Nasdaq 100 / QQQ in favor of Gold. Not necessarily bearish on Gold, I actually want Gold to go as high as it can. If the NDX:GOLD ratio re-tests the tech bubble peak ratio near 17.0 with Gold at 2000, then Nasdaq 100 would grow to 34000. On the other extreme, if Gold falls to 500, then NDX can grow to 8500, keeping that 17.0 ratio.
I’m going to use that 20 year neckline as my line in the sand. I’ll switch from NDX-bug to Gold-bug when that line is breached and backtested.
This is also one of the charts that keeps me using the Nasdaq 100 as my “momentum filter” for my trades. Below is an example of a real trade I made where I bought Turning Point Brands (tobacco and vapor producer) near the breakout of an ascending triangle on its NDX ratio chart. Still holding this stock. “Sit Tight and Be Right” as long as the ratio is “right”. Please check out my blog post here to see 10 examples of buying high growth stocks on Nasdaq 100 ratio breakouts. Sadly, none of my top ten ratio breakout trades are gold or silver miners (we’ll see if that changes in a year) -Harry
Nice chart Harry, my long term ndx target is 24K. Hopefully the ndx/gold ratio is even relevant by then.
Thanks Schism! A run to NDX 24K can be life changing for investors who are prepared. Can use NDX:GOLD ratio to start exiting NDX related positions when the ratio reaches the 15 to 18 area. Then I would assume a rotation back into Gold to the ride the ratio back down the next tech wreck.
Tobacco ?
Is that still a thing anymore ?
sheesh
I guess many traditional cigarette users are being converted into vape users. I hear radio commercials for Juul often, and they always profile a traditional cigarette “addict” who switched to vaping, saving his money, health and girlfriend LOL
Any guesses as to when we might see a test of the 17 ratio should we get that far, Harry? The chart suggests should this be the end of the bull like it was 1998 we should experience a blow off top. There is so much top calling out there that this feels nothing like 1998 although we did experience a heck of a shake out then. In the recent past, any shakeout would send investors clamoring to the exits. But, towards the end of 2018 it was as investors caught on and figured out what the market was doing so they held tight and sentiment was hardly dampened even with a stiff decline. Then the market figured them out and here we are. So, just doesn’t feel like 1998 more like 1991 or the end of 1994.
Good question Gallo! The drawback of ratio analysis like this is that it doesn’t offer a good solution for timeline. I guess adding some cycle analysis like the type Northstar and Surf City do would help find the “time target”
My guess would be within 3 years. Looking at the previous run up, there was a backtest on NDX:GOLD in mid 1998, before the bubble into 2000. I’m thinking we’re in the pre-bubble backtest phase right now similar to mid 1998.
I would use the NDX:GOLD ratio to start taking profits and divesting out of Nasdaq 100 when the ratio approaches 15, 16, 17. Can rotate some of those gains into Gold to ride the ratio back down like in the years after the 2000 tech bust.
What would be really wild would be if the NDX:GOLD ratio reaches 17.0 and keeps going higher… extreme market distortion!
Great charts Harry. My suspicion is that Gold and Nasdaq rise together for the next year or two, with the ratio continuing to increase slowly but steadily. With a large cyclical pullback in gold into 2023, I’d expect the ratio to peak and coincide with a top of some sort in general stocks. At that point, my current thinking is that gold enters a parabolic phase into the mid 2020’s. It matches well with my take on things.
Thanks Northstar!! Thanks for pointing out the cyclical low of Gold in 2023, that may indeed be where we see a re-test of the 17.0 peak ratio, and also the best time to rotate out of tech/momentum stocks into Gold (and hopefully miners begin another “golden era”). Adding your cycle analysis to this type of ratio analysis gives a more complete and insightful forecast!